Question

On April 5, 2020 Company A sell merchandise to Company L for P50,000 under the terms: 2/10, n/30 FOB Shipping point freight prepaid. Company A being the shipper paid the freight amounting to P2,000. On April 12, Company L paid in full the account amounting to P50,960. Company A notify Company L that the amount to be paid is not P50,960 but P51,000. Whose claim do you think is correct A or L? Explain

ABC Enterprise is a grocery store that sells high volume but relatively low-priced items. The entity has a computerized system (point-of-sale scanner) to account efficiently all items sold. The accountant decided to use the periodic inventory system because the entity sells high volume and low-priced items, anyway at the end of the period a physical count of goods has to be made to establish the unsold items (merchandise inventory end). Do you agree with the accountant? If Yes why, if No support your answer.

Answer 1

Question 1)

2/10, n/30 describe the payment terms. If the invoice is paid within 10 days then the buyer is eligible for 2% discount and without discount, it can be paid within 30 days.

The discount % will apply on the Invoice amount and not total amount including Freight. The terms afe FOB Shipping point, that means the sale is complete when the goods are shipped and during the transport the ownership of goods lie with buyer and he is responsible for the payment. But the seller has paid for that, so the buyer must reimburse seller and cannot take discount in such amount.

Discount = 50,000 x 2% = 1,000

Payment must be = 50,000 + 2,000 - 1,000 = 51,000

Company A (Seller) is correct in this regard

Question 2)

In Grocery Store, the levels of Inventory information is vital and must be updated in real time. This is because we have to know the inventory in stock and based on that we will decide whether to make purchase orders for that inventory thus helping us in reducing Stock Out costs. (So Inventory levels play a major part in determining Inventory reorder level, optimal level etc).

The real time updation of the inventory is possible only in Perpetual Inventory System. This is not possible through use of Periodic Inventory system.

Perpetual Inventory system helps in correctly knowing the inventory in hand and thus helping the management. Periodic inventory system may be easy to follow but Perpetual Inventory system helps the business to be more accurate & pro active with its well managed inventory data.

For all the above mentioned reasons, I disagree with accountant's opinion of maintaining inventory using Periodic Inventory system